History of prepaid

It used to be that the idea of prepaid was for those with poor credit. If you had bad credit and wanted wireless service, you either paid huge deposits to a cell phone carrier or used a company like Tracfone. The problem with this was that in either case you were paying through the nose for cell phone service and usually ended up with substandard phones and service.

Prepaid companies at the time were mostly new so they were happy to have this small business segment. Customers on the other hand were not so happy because they were paying a lot and getting so little. As business for some of these companies grew, their potential customer base shrunk. So not only were prepaid companies facing a shrinking customer base, cell phone companies became more forgiving of bad credit customers so cell phones became easier to get. At that point there wasn't much of a reason to use prepaid. Who wanted crappy phones, bad service and high minute costs? Prepaid companies either had to become more competive or close their doors. That is exactly what Tracfone did. They dramatically lowered their rates, so they kept adding customers. The more customers they added, the better the rates they received from the carriers and the better the rates they could offer their customers.

Today, Tracfone has over 10 million customers making them the largest prepaid provider in the US and most successful "MVNO" (Mobile Virtual Network Operator). They have so many customers today because their rates are so competitive with those of the contract carriers. In fact, many of their customers realize great savings with Tracfone since they only pay for the minutes they use. Some customers pay as little as $6 a month to maintain their cell phones active and it's for this reason that you are seeing a resurgence in prepaid.

How does Tracfone Work?

Tracfone works exactly like a regular cell phone. In fact, Tracfone uses all of the large carriers for service. This means that when you get a Tracfone you are really getting AT&T, Verizon, Alltel , TMobile or one of the smaller rural carriers . The only difference is that Tracfone takes on the contract for you and resells the minutes to you for a very small profit. Since you are using a regular carrier for service, you get whatever the local carrier offers (with the exception of data plans). So with Tracfone you get voicemail, caller id, call forwarding and texting. Tracfone also has a pretty unique system of adding and tracking your minutes.

All of their phones are equiped with special firmware that interacts with their system either by you entering codes or by over the air transactions also known as OTA. It used to be that if you wanted to add minutes or activate your Tracfone, you had to call customer service, then punch in a series of codes into the phone. Today, most of their activations and air time transactions take place using OTA. With OTA you either initiate the trasaction on their website when you purchase an airtime card / Activate the phone or by punching in the card number into the phone if you buy a card at a store. This makes it very convinient because you can add minutes or activate a phone ANY time even when customer service is closed.

Tracfone's system is so efficient that over 90% of their transactions take place without the need for customer service. This system is also very secure, so secure in fact that it is next to impossible for someone to intercept the signal and steal your minutes. Every Tracfone has a set of parameters as unique as a fingerprint and only Tracfone can successfully communicate with it. In addition, they use a very sophisticated algorithm that includes the phone's unique parameters to generate their codes and since the minutes are stored physically on the phone, they can only be stolen by physically stealing the phone.